Wednesday, November 9, 2011

Adobe Systems (ADBE) - Stock Down, Vol Up, Future... Uncertain?

ADBE is trading $27.90, down 8.3% with IV30™ up 16.3%. The LIVEVOL® Pro Summary is included below.


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Adobe Systems Incorporated (Adobe) offers a range of business, Web and mobile software and services used by professionals, knowledge workers, developers, marketers, enterprises and consumers for creating, managing, delivering, optimizing and engaging with content and experiences across multiple operating systems, devices and media.

With the market down size it's not hard to find stocks with elevated vols. This is a note on elevated vol but with interesting news to push it further. I found ADBE using the real-time custom scan that searches for high vols relative to the short-term and long-term historical realized vol.

Here's the news driving the ADBE move today:

Shares of Adobe Systems tumbled Wednesday after the software maker unveiled 750 job cuts as well as a plan to stop development of its Flash player for mobile device browsers.

In a blog posting on Wednesday morning, another major change was outlined: scrapping development of the company’s widely known Flash Player software for mobile browsers. Adobe plans to focus instead on HTML 5, another platform for publishing content on the Web.
Source: MarketWatch: Adobe pulls plug on Flash for mobile browsers, written by Benjamin Pimente.

Oh... Wait, so what?

Custom Scan Details
Stock Price GTE $7 and LTE $70
IV30™ - HV20 LTE 10
HV180 - IV30™ LTE -8
Average Option Volume GTE 1,200
Industry isNot Bio-tech
Days After Earnings GTE 10 and LTE 60

The goal with this scan is to identify short-term implied vol (IV30™) that is elevated both to the recent stock movement (HV20) and the long term trend in stock movement (HV180). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), want to avoid bio-techs (and their crazy vol) and make sure I'm not selling elevated IV30™ simply because earnings are approaching.

The ADBE Charts Tab is included (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).

Before today, ADBE was actually performing quite well, up from ~$23 in Oct to over $30. Today... not so good.  On the vol side we can see the spike today -- rather impressive, really. As of right now we can see:

IV30™: 46.50
HV20: 34.29
HV180: 33.99

So the implied is now well elevated to the historical measures.

Let's turn to the Skew Tab, below.

The skew shapes are actually quite normal -- no order flow in one specific line has pushed (or pulled) vol in any direction on a strike (or set of strikes). It is cool to note that the ATM Nov vol is less than the ATM in Dec while the downside in Nov is more expensive than Dec (in terms of vol).

Let's look to the Options Tab (below).

Possible Trades to Analyze
So the question is whether or not this news is truly a shift in the future for ADBE. Keep in mind that this company was / is a takeover rumor fav and with the stock down off the recent rise, perhaps those tricky little fakes... er... rumors... may surface again.

The lack of a real calendar vol diff is frustrating, honestly. With Nov expo approaching a short gamma position feels like it should provide more juice to protect than Nov has. Just last month after earnings vol, ADBE has over 50 IV30™. Having said that, a vol purchase feels icky too.

The most interesting positions to examine here may be diagonals on ratios. It's likely that the next earnings release for ADBE will be after the Dec cycle, so Jan'12 options may be in play given that the ATM vol is just 38. Hmmm...

But really... Is this big news?

This is trade analysis, not a recommendation.

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